NJ Tax Penalty Abatement and Common Penalties
Just like the IRS and most states, the state of NJ assesses penalties for not filing an income tax return or for filing an income tax return late. Moreover, it also assesses penalties for payment noncompliance.
Common Income Tax Penalties
Failure to File Penalty
Concerning delinquent income tax debt, there are two penalties that a taxpayer should know. The first is the failure to file penalty. NJ state will assess this penalty when the taxpayer fails to file their tax return by the due date, including extensions. The failure to file penalty is 5% of the tax owed for each month (or part of a month) the tax return is late. The maximum penalty for late filing is 25% of the balance due. Further, the Division has the power to charge a penalty of $100 for each month the return is late.
Failure to Pay Penalty
The second is the failure to pay penalty. The failure to pay penalty is 5% of the tax due.
Additionally, the State charges interest for each month (or part of a month) that a delinquent tax goes unpaid at a rate of 3% above the prime rate, compounded annually.
At the end of each calendar year, any tax, penalties, and interest remaining due will become part of the balance on which interest is charged.
As one can see, these penalties can become very steep. Therefore, even if a taxpayer is unable to pay (or pay in full) the tax due they should strive to file their income tax return on time (and make a partial payment, if possible) to avoid or reduce the impact of these penalty and interest assessments.
New Jersey law permits the Tax Division to abate penalties if the failure to comply with the provisions of the tax code were due to reasonable cause and not willful neglect. The form for filing a penalty abatement request with the Division can be found here: https://www.state.nj.us/treasury/taxation/pdf/AbatementRequestForm.pdf. The State provides the following examples of when a taxpayer established reasonable cause:
- The death or serious illness of the taxpayer or a partner, officer, director, shareholder, employee, or other representative of the taxpayer or such individual’s unavoidable absence from the usual place of business, which precluded timely compliance.
- The destruction of the taxpayer’s or the taxpayer’s representative’s place of business or business records by a fire or other documented casualty, which precluded timely compliance.
- The inability, for reasons beyond the taxpayer’s control, to timely obtain and assemble essential information required for the preparation of a complete return, despite the exercise of reasonable efforts.
- A pending conference with the Division of Taxation, or a pending action or proceeding for judicial determination, which involves a question or issue affecting whether or not the individual or entity is required to file a return and/or pay tax.
- Any other cause for delinquency which would appear to a person of ordinary prudence and intelligence as a reasonable cause for delay and which clearly indicates an absence of willful neglect may be determined to be reasonable cause. Ignorance of the law is not a basis for reasonable cause.
In all circumstances above, the taxpayer must have since filed the delinquent returns and/or made the delinquent payment(s).
Where to Send Penalty Abatement Form
The taxpayer should submit the completed and signed penalty request form to:
NJ Division of Taxation
PO Box 046
Trenton, NJ 08646-0046.
The Division will usually make a determination within 60 days. The Division may abate all, some, or none of the penalty. The taxpayer cannot appeal penalty abatement request determinations. However, they may refile the request if circumstances change.
Disclaimer: Reading this article does not create an attorney-client relationship. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.